Philippine Business News | Online News Philippines
- Details
- Published on Monday, 08 October 2012 00:00
- Written by IRMA ISIP
Direct selling, multilevel marketing, pyramiding, scam.
From legitimate to a rip-off.
Only a thin line separates pyramiding from direct selling and many cannot distinguish the different shades of grey.
The Direct Selling Association of the Philippines continues to be threatened by this kind of chain distribution scheme.
The association laments the fact that even as far back as a decade ago, the Department of Trade had prohibited pyramiding, yet they cannot entirely shake off its nasty shadow.
While DSAP stresses the fact that pyramiding and direct selling operate differently, legitimate direct sellers and multilevel marketing (MLM) companies are inadvertently lumped with the illegal operations of pyramiding.
DSAP has 32 members with an estimated annual sales over P35 billion and has about 2 to 3 million sales force.
DSAP said the sales number is conservative since its membership is growing.
Rosalio Valenzuela, DSAP director and vice president of Forever Living, said
the industry has long been seeking a separate legislation for direct selling since it is now just governed by the Consumer Act of the Philippines where the penalties are not that stiff.
Department Administrative Order (DAO) 8 meanwhile has been issued 12 years ago by the Department of Trade and Industry (DTI) "Prohibiting Chain Distribution Plans or Pyramid Sales Schemes in the Sale of Consumer Products." But some entities manage to still go around the order and do their illegal trade.
The DTI could not provide data nor report on the success of the DAO in clamping down pyramiding.
Deliberations were done in August 2011 before the House committee on trade of Rep. Albert Garcia on a bill that would govern direct selling but this did not prosper.
The DSAP said the Philippines is the only country in Southeast Asia with no direct selling law. In its absence, DSAP does its own self-policing among its members.
"The industry is still governed by the general Consumer Act of the Philippines. Up until now, we are working on drafting the direct selling law. DSAP was already invited as a resource group on the first technical hearing at the House of Representatives under the committee on trade. It was an attempt to deliberate in aid of legislation the different meanings of MLM, pyramiding, and direct selling in general, " the group said.
Valenzuela said the public should be aware of the key distinguishing differences between direct selling and pyramiding so as not to fall prey into the hands of unscrupulous traders.
In DSAP, an 8-point test drawn up by marketing professional Josiah Go that confirms if a company adheres to the ethical practices of direct selling, as opposed to pure pyramiding.
"The basic criteria is that there is a product involved. The income generated by the direct seller is from the savings gained out of the products he buys from the company at a discount which he sells, always at retail, to the end-user," Valenzuela said.
This is as opposed to pyramiding where a person earns from recruiting another reseller.
" Pyramiding is an illegal money scam often confused with legitimate network marketing plans, where people are convinced to pay money for a chance to profit from the payments of others who might join later," DSAP said.
Valenzuela explained that direct sellers do not seek any investment from their distributors and only charge a minimal fee for registration and startup kits. In cases where one has to sponsor another seller, the sponsor does get an incentive for "recruiting" that other distributor through rewards or points on the products sold.
"There is no commission on the recruitment," Valenzuela said.
At DSAP, companies seeking membership should present a comprehensive marketing plan to show a sustained, long-term business opportunity for distributors.
"The shortcuts (employed by pyramiding) destroy direct selling and multi-level marketing," Valenzuela said.
In some questionable multilevel marketing schemes, there is also that gray area where like the legitimate direct selling, a product is also involved in the deal. The thing to watch out for is that the product is grossly overpriced .
"There are a lot of `me too' in the business so one has to look for the value proposition of a product. One just has to be discerning. Why buy something at a high price when it has no additional value? One also has to be sure of the quality of the products that they plan to sell," Valenzuela said.
One other differentiation, Valenzuela said, is that direct sellers have a solid return policy to protect the interest of the consumer.
While online marketing or e-commerce has been slowly becoming popular, this segment has its own market different from those targeted by direct sellers.
Online selling is for tech-savvy consumers in the younger set, DSAP said. The Filipino consumer likes the person-to-person way of pitching a product, which he can actually touch and try. Then there is that element that someone is there to explain the features and benefits of the products that he is buying.
In most cases, since the seller actually uses the product that he sells, he provides the best and most credible testimonial of the uses and benefits of what he is selling.
This is also probably why nowadays, food supplements is the most popular product in direct selling. Majority of DSAP members are engaged in selling food supplements.
"This is because of the revolution of health and wellness in the country. Food supplements are easy to push through direct selling," Valenzuela said.
According to DSAP, direct selling is more popular in the urban areas. However, it has noted that direct selling is increasingly becoming strong in areas where there is very little access for products.
On the company side, direct selling is a viable way of distributing products since there is little or no overhead. Since there are no celebrity endorsements, the advertising cost is negligible.
"The sales support is actually the distributors. The key is to have as many people to sell your products to," said Valenzuela.
In direct selling, "sipag" is all it takes to make it.
In Forever Living, Valenzuela said one can net an average of P40,000 to P50,000 a month.
"A direct selling company would give one opportunity to do long-term business. It's not a quick buck (scheme)," said Valenzuela.
Among its members are Avon, Tupperware, , Forever Living Products, Amway, Q Plus, Nu Skin, among others.
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